To Mexico’s Fox, Foreign Firms Key

For a preview of what President-elect Vicente Fox has in mind for Mexico, take a drive along Highway 45, the so-called industrial corridor of his native Guanajuato state.

Dozens of foreign manufacturers, from General Motors and Procter & Gamble to General Electric and Green Giant, line the 100-mile stretch of freeway bisecting the verdant Bajio valley, a once solidly agricultural and mining region. Many arrived or were lured during Fox’s four years as the state’s governor that ended last year.

Fox has made clear that just as foreign investment was his top priority as governor, it will be essential to his administration when he takes office Dec. 1. The former Coca-Cola executive is framing foreign investment as Mexico’s best and shortest path to faster economic growth and poverty reduction.

But amid the general enthusiasm here for Fox, who was elected July 2, there are discordant voices--local economists, businesspeople and opposing politicians--who say Fox’s obsession with foreign investment as an often-absentee governor was misguided and not all that productive. And local manufacturers complain that foreign firms get all the breaks--at their competitive expense.

Fox spent much of his governorship abroad, wooing foreign companies in the United States, Asia and Europe, a campaign that helped attract nearly $3 billion in investment since he took office. The foreign firms will have added 20,000 jobs when their plants are fully built out. Their presence helps explain why Guanajuato has the lowest unemployment rate of any Mexican state except Baja California.

Foreign investors are also improving the state’s infrastructure. Intergen, a Bechtel-Shell partnership based in Boston, plans a $400-million power plant near Celaya. In December, Canadian concern Normand Nadeau is to break ground for a $1.2-billion, 100-mile-long interurban passenger trolley line, a pet Fox project that will shuttle workers to jobs up and down the industrial corridor.

Not that Fox is alone in pushing foreign investment for Mexico. Much of the nation has seen a flood of investment by U.S., Asian and European companies in the wake of the North American Free Trade Agreement, which has transformed this country into an export machine.

In fact, Guanajuato’s track record in attracting foreign investment since 1995 is “nothing special, in the middle of the pack,” compared with those of other Mexican states, said Monterrey Technological Institute economist Alfredo Sandoval.

The mediocrity of Guanajuato’s record is not necessarily Fox’s fault. State governments can do only so much to lure the huge waves of cash that have washed over Mexico since NAFTA took effect in 1994, economists say.

On whose shores the waves break depends less on local initiatives than on such factors as geography and proximity to roads and railways that are outside government’s immediate control.

Though Fox is generally applauded for promoting his state to foreign manufacturers and for upgrading vocational training to staff the factories, critics voice a common complaint about foreign investment in Mexico: that it has done little to build up Mexican-owned companies.

The law allows foreign manufacturers to bring in foreign components and raw materials for assembly here and doesn’t require them to buy locally produced parts. Mexico’s policy contrasts with those of countries such as Brazil, which requires that at least 60% of a product’s value, including labor, be produced by Brazilians.

Sources say only about 20% of GM’s auto production is Mexican-sourced, including the value of labor.

Moreover, though unemployment in Guanajuato is low, just 1.2% according to government figures, so are wages. The average maquiladora assembly-line worker in the state earned $40 a week last year, less than the national average of $58 and roughly half the $78 a week earned on assembly lines in the state of Tamaulipas, the highest-paying state in Mexico, Sandoval said.

GM’s average wage for assembly-line workers at its Silao plant in Guanajuato is about $36 a week, not including benefits, said economist Jesus Batta of Monterrey Technological Institute. A GM spokesman in Mexico City said the company does not discuss wages.

Meanwhile, the state has given foreign fabric and apparel firms free land and tax breaks, prompting complaints from local competitors. Although the firms are supposed to export their production, some of it inevitably ends up on the local market.

“The state should bring other kinds of industry, not what it already has,” said Adrian Sanchez Contreras, owner of Tejidos Swansea, a 30-employee apparel firm in Moroleon in northern Guanajuato state.

Fox’s emphasis on foreign investment gets him a lot of press that obscures more intractable problems such as poverty and health, said Monterrey Tech’s Batta. “Fox is like the bottles of Coca-Cola he used to sell: 80% promotion and 20% the real thing.”

Still, even Fox’s harshest critics concede that his single-minded pursuit of foreign investment has had payoffs. Perhaps most important, Fox greatly expanded technical education in his state to make Guanajuato’s labor pool more attractive to foreign companies, an initiative he says he will expand on a national scale as president.

Fox sent state officials to auto companies in Detroit and textile manufacturers in North Carolina to find out what skills employers needed, working with them to implement the appropriate training programs in Guanajuato.

For example, the state is custom-training 3,000 workers who will staff a $300-million refrigerator plant near here that General Electric and its Mexican partner, Mabe, will open later this year. The state is even paying the workers to attend school until the factory opens.

Though some say general education gets short shrift in Guanajuato, most agree that at least in the near term, Fox’s program is helping “globalize” the state’s work force, smoothing the transition from an agrarian to industrial economy.

And there are cases in which Fox’s personal touch made the crucial difference in persuading foreign companies scouting the Mexican landscape for plant sites to decide on Guanajuato.

Recently arrived employers American Axle & Manufacturing and Lear, both major GM suppliers, say they chose Guanajuato over other states because of the government’s business-friendly approach and lack of bureaucracy.

“I have to be in Mexico, but not in Guanajuato. The administration of Vicente Fox brought us here,” said Curt Howell, managing director of the American Axle plant in Silao, a mile from the GM plant.

Howell said the Guanajuato economic development office assigned him a staff member whose only job was the care and feeding of American Axle--tending to any bureaucratic problem American Axle might confront in getting its factory built and operating.

The jewel in Guanajuato’s crown of foreign manufacturers is GM, which assembles 44 Chevy Suburbans and Silverado pickups every hour at its massive Silao plant. But Fox can’t take credit for GM: Its complex covering 500 acres has been in operation since 1994, the year before he took office.

Fox can arguably be credited with making GM comfortable enough to recently start work on a $350-million engine plant at its Silao complex. It will add 2,000 jobs to the 3,500 already here.

American Axle, which itself has begun a $220-million expansion, is one of about 15 foreign auto suppliers here supplying GM and other auto giants in Mexico.

Observers question whether Fox can meet his goal of attracting $20 billion a year in foreign investment to Mexico, a quantum leap from the $12 billion the nation is currently attracting.

Fox says that volume of investment is crucial if Mexico’s economy is to create the 1.35 million annual jobs--one-third higher than the current level--it needs to meet his goal of 7% annual economic growth, compared with the current 5.5% rate.

“Brazil gets $19 billion [in foreign investment] a year. We can make it,” said a Fox associate in Mexico City.

Locals aren’t so sure.

“Fox is very good at marketing and has sold the idea of a promised land” dotted with U.S., Asian and European factories, said Emeterio Guevara, a research economist from Guanajuato. “Will he succeed? I don’t know. But I am sure of one thing. The problems he will face as president are much tougher than what he had in Guanajuato.”

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Fox’s Home State

Despite his emphasis on attracting foreign investment, Mexican President-elect Vicente Fox’s home state of Guanajuato ranked 18th among the 31 Mexican states in terms of growth. The 10 biggest states, ranked by gross regional product, and their recent growth:

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GRP in Avg. annual billions, growth rate, Rank/state 1993-98 1993-98 1. Mexico state $47.5 3.4% 2. Nuevo Leon 25.2 3.9 3. Jalisco 19.0 2.2 4. Coahuila 15.5 5.0 5. Chihuahua 12.6 4.5 6. Puebla 11.4 4.0 7. Veracruz 11.0 2.2 8. Guanajuato 9.1 2.8 9. Baja California 8.9 5.2 10. Tamaulipas 8.6 4.1

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Source: Mexico secretary of economic development and labor